Giffen good: a standalone construct

The economist Alfred Marshall named the Giffen good in the 1895 third edition of his Principles of Economics, crediting the observation to the statistician Robert Giffen, who was reported to have noticed poorer families buying more bread as its price rose. It is defined as a good whose quantity demanded increases when its own price increases, reversing the usual pattern in which people buy less of something as it becomes more expensive. This can occur for an inferior good, one that buyers purchase less of as their incomes grow, when a price rise leaves buyers so much poorer in real terms that the pull back toward the cheap staple (the income effect) outweighs the ordinary tendency to switch away from what has become dearer (the substitution effect). For over a century the case rested on theory and contested anecdotes, until Robert Jensen and Nolan Miller reported the first clear field evidence in 2008, subsidizing rice and wheat for very poor households in two Chinese provinces and finding demand that rose with price for rice in Hunan. The construct is a landmark because it marks the precise conditions under which the law of demand can fail, a boundary case that helps define the modern theory of consumer choice.[1][2][3]

Unit

A category of good, defined by the sign of the relationship between its own price and the quantity demanded

Recovery means

Not applicable

Measured by

Identified when the estimated own-price demand elasticity for a staple good is positive, after separating the income and substitution effects, as in controlled price-subsidy field experiments